Should Apple fear Amazon?

On Thursday afternoon, Amazon’s Jeff Bezos got up on stage and introduced the world to an awesome set of updates to the Kindle Fire. Amazon doesn’t just want to have the best priced tablet (Kindle Fire is now $159), but it also wants to have the best tablet “at any price”.

To that end, the 8.9” Kindle Fire HD is hitting the market in November. It has great technical specs, and comes with a $299 price point (16 GB, Wi-Fi only) and a $499 price point, which includes 4G (LTE) and 32 GB of memory. That’s between $200 and $230 cheaper than a comparable iPad.

Andy Grove, the former CEO of Intel, is famous for saying, “Only the paranoid survive”. I think it’s fair to say that it’s time for Apple to get paranoid. No, I’m not saying Amazon will kill the company Steve Jobs founded. Far from it. But I do think Amazon is a serious threat, and paranoia would be healthy here.

What Amazon has going for it is an incredible back-end business that it can monetize. Amazon isn’t interested in making money on tablets. Instead they want to make money when people use their tablets. And with Amazon’s incredible online retail size, Kindle Fire customers will buy lots of stuff.

So Apple needs to be fearful of a competitor that essentially doesn’t care about profit from hardware, which is in stark contract to Apple, which makes a ton of money from hardware by including incredibly good software.

Even worse, Amazon isn’t under pressure from Wall Street to make money in the very near term. Yes, the company is profitable. But profit margins are thin. Amazon has time on its side. By contrast, if Apple felt the need to drop prices on the iPad, its stock would get creamed instantly.

I’m also impressed with Amazon’s ability to change the game when it comes to paying for bandwidth. They somehow managed to convince AT&T to support a $49 per year LTE plan. It’s a pretty limited plan at 250 MB per month, but I still think people will eat it up just as a convenient backup plan to Wi-Fi. I’m dying to know how Amazon made this happen. Are they cutting AT&T in on any e-commerce transactions done via LTE, essentially making AT&T a giant Amazon affiliate? Is there something special here that only Amazon can offer carriers? I think being able to offer customers a better data plan is a compelling advantage in the market.

In Apple’s corner, they’ve still got the best darn app ecosystem on the planet. It will be a while before Amazon’s forked Android platform can compete on apps. But don’t count them out. If it sells well, developers will rally behind it and the Kindle Fire will start to get the same quality of tablet-optimized apps the iPad currently enjoys. No question.

Apple also wins with stickiness since iPhone and Mac users are much more likely to continue paying a premium for the iPad over any competing product. Add Apple Retail into the mix, with AppleCare and Geniuses and Specialist and everything else a real, physical location with great customer service offers, and it's an advantage we shouldn’t under estimate.

Another winning element for Apple is distribution. The first Kindle Fire was only available to US customers. Amazon is expanding European distribution somewhat with the Kindle Fire HD, but it still pales in comparison to the global reach of the iPad. Amazon has also had trouble striking the kind of global content deals Apple has managed to secure. Kindle FIre content is limited outside the U.S. whereas Apple has the best digital content availability on the planet.

But again, this is not a long term advantage and we shouldn’t act like it is.

I remember when the iPhone first came out, and I was a sell side analyst attending the RIM analyst event in Orlando. A fellow analyst asked Jim Balsillie, then Co-CEO, if he was worried about the iPhone. Paraphrasing his answer: It’s one phone sold by one carrier in one country. Steve Balmer laughed at the iPhone by asking who would possibly want to buy a phone with a $600 price tag. Ed Colligan of Palm said no PC guys were going to figure smartphones out.

We all know what happened after that ...

So, Apple needs to get paranoid. They’ve done an amazing job of bringing killer products to market at fair prices. Android vendors, Research In Motion, and (so far) Microsoft have failed to present any real threat to Apple’s dominance with tablets. But in one short year, Amazon has become the price leader with a good product in an important market, taken significant US share (if you believe their numbers), and followed up with several much better products. Amazon is moving fast. They’re innovating for real and not just copying Apple.

Obviously this will be a long and hard battle. Apple gets to throw the next punch on September 12th and may just follow it up with a low-priced iPad mini. I can hardly wait.

I find it comical that this writer happens to think that the readers or owners or I-Phones or tablets are fearful if the Kindle products do well in the marketplace. Why should any smart customer worry about anything, the positive side is it will force Apple to lower their over priced products if they want to sell them. I see it as a positive thing for any smart customer. More great products mean lower prices and better future products. This writer likes to spin his column like it is us against them, what a crock of bull crap, be smart, don't buy into this crap, it will force Apple to lower their over priced hardware and that is a good thing. Just My Opinion.

You know what I realise imore is all about i products but why are so many posts pitched as if they are being published to Apple employees or share holders. I am a very happy to be an iPhone /iPad owner but at the end of the day I'm a consumer wanting the best products at the best price from a highly competitive market. This article reads (like quite a few) that I personally need to be worried by amazon producing a highly competitive product. Bring it on I say. Good luck to Windows 8 and Nokia! If Apple falter and slip...who cares. Someone will fill the void with a quality product. I really enjoy Apple products but I will never be a fanboy for any computer company. What a ridiculous concept! I would be worried as a fanboy if a GREAT iPad mini is not unveiled next week.

^ exactly. I hate how people keep sucking on Google and Apple as if it's more than a tech company out there to make a profit. Enjoy their products but keep an open mind as to what is out there. Not everything Apple makes is amazing and not everything others make is crap and vis versa. Use what's best for your needs. Some like openess and tinkering, some like things wrapped in nice package under a wall garden. Both have pluses and minuses.

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I find it hard to see Amazon as a threat to Apple at the moment, mainly because the tablet is only available in the States whereas the iPad is available in many countries worldwide, giving Apple an advantage. If Amazon releases their tablet internationally, then maybe Apple should get worried.

"But I do think Amazon is a serious threat, and paranoia would be healthy here."

You mean like it was a serious threat the past 9 months when the original Fire sold MAYBE 5-6 million units for ~$1B revenue? All this while Apple sold 44 million iPads for over $20B in revenue? Serious threat? Seriously?

Now we have new products that will not ship until Nov. 20th. Between now and that date, Apple will probably sell at least another 10 million iPads worth over $5B. As you offhandedly tack on at the end of the article, a month before the 8.9" Fires ship, the iPad mini will very likely be announced AND ship. How many of those do you think Apple will sell in the first month?

That said, I agree that paranoia is healthy. But Apple, in the past decade, has always acted paranoid. You don't need to make up "serious threats" for them to fear.

"If it sells well, developers will rally behind it and the Kindle Fire will start to get the same quality of tablet-optimized apps the iPad currently enjoys. No question."

Wait. You mean the original Kindle Fire did NOT sell well? But I thought it was the best selling Android tablet with over 50% share of the non-iPad market. And didn't Amazon claim that it has 22% of the U.S. tablet market? So what you meant to say was that despite selling well, developers still have not rallied behind the Kindle Fire. No question.

Sorry for the sarcasm, but you really did ask for it with that headline. Amazon did announce some good stuff today. Let's see how the products actually work when reviewers get to spend some hands-on time with them.

It's not enough to surpass the iPad on particular specs or features; they need to match the whole package. I don't think either Amazon or Google has done that. Meanwhile, Apple is well on its way to the 4th gen. iPad and the 1st gen. iPad mini. I think it's Amazon that needs to fear that their newly announced products will arrive practically DOA.

I do not know if "fear" is the right thought, but they should definitely take Amazon seriously. I have a second generation Kindle and am also a Prime member. I did not jump on the Kindle Fire but if Apple does not do an iPad mini, I'll be buying one of the HD Fires. Amazon has a lot to do to play catch up to Apple, but they are the only other real horse in the race that is close. Most other Android tablets are not up to par versus the iPad. Amazon is the closest one to it. We will have to wait and see if Apple delivers an iPad mini and how the new HD Kindle Fires preform.

Why exactly is it that other android tablets are not up to par to ipad???? The only reason the Kindle is getting so much attention is because they are doing what Google should have done a while ago: released a tablet at cost and make profits off of content. If the Kindle was the same price as the Ipad it would not even be mentioned on this website. Price point it everything. Other Android tablets do everything the iPad does if not more

I'm intrigued by your use of "we". As in "it's an advantage we shouldn't underestimate". It is indicative of the psychology that Apple uses to keep it's profit margins high, even as competition catches up. This is why you are wrong in assuming Apple will continue to maintain the bar for profit margin that it currently has.

The only vested interest that a customer really has in a platform is the health of the ecosystem. Essentially, customers of Apple, Android, etc, are invested into it by a lack of cross-platform portability of apps.

But that is the power of that methodology, isn't it? Although you and I own no stock in Apple, essentially, we have a vested interest in that our devices are only as strong as the support of the community that codes for it, and all Apple, Amazon, and Google have to do is sit back and watch the money roll in (cost of oversight aside).

It is brilliant psychology that we are all slaves to, but at some point we will have to realize that Apple will not be able to keep the profit margins that it has as other ecosystems become stronger. It will have to sacrifice margins on the device in order to broaden the user base. That is a cold truth that people refuse to accept.

It was humble, but with just the right pinch of proudness you'd expect from an Apple-centric site.

I haven't been on iMore for long, but this may very well be the single best article to date for me personally.

Apple does indeed to to be nimble on their toes and not rest on the laurels. I think their prepared for the challenge, but they also know not to count out any competitor.

As for a smaller iPad, I still can't see them selling it for less than $299. It would cut into the profits made from the larger model. Then again, maybe they would sell more of the smaller model and easily counteract that problem.

It's a well written article. Apple should definitely be paranoid. I mentioned before Amazon swung a hammer and made a few cracks.

But to expand further, i'd be a bit worried about the ipad mini now. If it's a non retina screen as rumored, it's not going to be very impressive. A smaller ipad with corners cut in parts won't wow anyone.

I really should learn by now. After seeing a video of the Fire HD in action, it's a lag mess. Sure, the hardware sounds great but there's no way I'd waste my money on one of these. I'd rather have the nonretina ipad mini over the crappy software Amazon forked.

"...i'd be a bit worried about the ipad mini now. If it's a non retina screen as rumored, it's not going to be very impressive. A smaller ipad with corners cut in parts won't wow anyone."

Thinner, lighter, cheaper. It will impress and wow plenty of consumers. Apple will sell over 10 million before the year is over. They might sell 10 million before any of the 8.9" Fires even hit the shelves. You don't need to worry about the iPad. Save your worry for the other Android tablets.

As okli correctly points out, Google is the one Amazon hit with the hammer with these product announcements. Google gets little to no ad revenue from these Jelly Bean powered devices. Amazon doesn't even bother to tout that they're run on Android. The 7" Kindle Fire HD for $199 will give the Nexus 7 a serious run.

Thinner, lighter, cheaper? Cheaper than what? An iPad 3? And I never understood why people buy Apple products just because they're thinner and lighter than their predecessors. Who cares about lighter and thinner that much? Even the iPad 3 can't compete with the Kindle Fire HD from a hardware perspective, it also has a retina display, it has a better downlink, it has better sound and heck, it's even 400 dollars cheaper in year one. But Apple comes along with an iPad Mini, which has still the iPad 1 and 2 screen resolution, no stereo sound, no 2 antennas, no MIMO and probably not even LTE. It'll be a shrunken iPad 2 16GB WiFi. But still for 350 Dollars I bet. But yeah, it will be LIGHT and THIN. It's always the same. By a time when Apple has nothing more to offer, they make their products lighter and thinner.

TommesJay: Yes, it will be thinner, lighter and cheaper than the tablet that is universally (except for the Apple-hating crowd) considered the one to beat. No, this is not meant for consumers who already own the latest iPad. It is targeted to consumers who thought the iPad was too large, heavy & expensive for their needs or budget.

The 8.9" Fire HD is not available to buy, so it is not competing with existing iPads just yet. All those "better" features you quote may or may not actually function as advertised. We'll find out in 2.5 months.

You may not think Apple offers anything of benefit for their premium prices, but clearly hundreds of millions of consumers do. You may want to try and understand that other people value ease-of-use, stability, security, customer service, beautiful design, build quality, etc.

I would be very surprised if the iPad mini was priced at $350. With its economies of scale, Apple will make a healthy profit at $299. If they decide to truly "go thermonuclear", they'll sacrifice a bit of those profits and sell it for $249-279. iMore originally predicted $199-249.

The thing is, that the iPad is a media consumption device. Sure there are people who use it for more than just media, but these kind of people doesn't account for 15 mio sold units per quarter. What people really value is ease-of-use and ecosystem. The other strengths of Apple and its products you mentioned are also a factor, but not the most critical which made Apple that big as they are today. Now what we're facing here is, that the Kindle Fire also has ease-of-use and an ecosystem. And with the HD, they also have high quality hardware. But at a far more affordable price point than Apple. Also in terms of customer services Amazon has a great reputation.

During the keynote, Bezos made an important point: Android tablets last year didn't sell, because they're just gadgets. And no one wants to buy a gadget starting at $500. What people really want, is a handy device for media consumption and games. And therefore a wide ecosystem is needed. Apple has it, and iOS Apps are of really high quality, and that's the reason why they sell so much iPads. Stability, security, design, build quality - all just fine, all little parts of the whole, much bigger picture. But without an ecosystem like iTunes/iBooks/AppStore/iCloud, Apple would sell nothing.

And let's get this thing clear: I absolutely know which benefits Apple is selling with their devices. Clearly the ones you already mentioned, plus many more. I'm no hater and I get the point. The simple thing is, that I think that those hundreds of millions of consumers you stated, buy iPads because of their ecosystem. And if they can get a device of good hardware quality with a comparable, if not better ecosystem than Apple's, which is also easy to use and which has that nice added features like X-Ray and so on at a much lower price point, I don't see anybody buying iPads anymore. Sure, anyone who uses an iPad as a corporate device and needs certain business functionalities, will probably stick with the iPad, but all those media consumers and gamers?

And now let's assume you get an 16GB, WiFi-only iPad mini with iPad 2 Specs despite the 7" form factor for 299 Dollars. At the same price point, you get an Kindle Fire HD with a 8,9" Retina display and other, better hardware features all the way (camera/downlink/sound). Ease-of-use and ecosystem are also there (loaded with 180.000 exclusive books and those great X-Ray-Features and Whispersync and stuff). Give me a reason why I should throw my 300 bucks an that iPad instead.

"...I think that those hundreds of millions of consumers you stated, buy iPads because of their ecosystem. And if they can get a device of good hardware quality with a comparable, if not better ecosystem than Apple's, which is also easy to use and which has that nice added features like X-Ray and so on at a much lower price point, I don't see anybody buying iPads anymore."

I agree that Amazon's media content (music, books, video) ecosystem is a match for Apple's. App content is another story and I think you underestimate how important those are for consumers. I also doubt Amazon will match Apple's build quality.

Apple sells roughly $2.75B worth of iPads (~5 million) per month. If/when they introduce an iPad mini next month, those numbers will spike up. Of course the average sales price of the iPad line will decrease, but I expect Apple will eventually report sales of 25-30 million iPads (~$10B revenue?) for the last quarter of this year.

Amazon will definitely sell some 8.9" Kindles starting in late November; probably mostly the $299 version. But they will not announce sales numbers because those numbers will not be noteworthy. They certainly will not put a damper on iPad sales.

But time will tell. You think iPad sales will decrease. I think they will continue to increase. We'll know by mid-2013 what happens to iPad sales. We probably still won't know anything definitive about Kindle sales.

I agree with all of that except stability and security. Apple products are no more secure than any other os, probably less secure. They haven't had to deal with major attacks like windows has yet. Their review process is their to protect Apple, not the consumer. They make sure you are not cutting Apple out of its 30% cut and so it does not include any adult content or language( or how many people americans have killed in war). As for stability, it's been widely reported that iOS apps crash more than Android apps. The os is more stable than earlier builds of Android, but not the case anymore.

"I agree with all of that except stability and security. Apple products are no more secure than any other os, probably less secure...As for stability, it's been widely reported that iOS apps crash more than Android apps."

We'll just have to agree to disagree. (I wanted to write "You can't be serious!", but decided to be diplomatic. <g>) We could play dueling reports that support our respective points of view, but I doubt either of us will change our opinions. No offense intended, Dave. I have a brother-in-law who shares some of your sentiments. The debate always reaches a stalemate.

I like what Amazon is trying to do here with their new tablets, but when Apple comes out with their iPad Mini I think the Kindle Fire is going to struggle. All of this depends on price points from Apple but they should be close enough to impact Amazon. I've used a Kindle Fire, not the new versions obviously, and their Android implementation is too Amazon integrated for its own good. Android's tablet apps are sub-par compared to Apple and not having Google Play (instead the Amazon app store) store makes it even more limiting.

But what I think people must realize is the 8.9 variation does not cut into potential Ipad min sales (which rumors say will be 7 inches) but it cuts into potential Ipad purchases because its 8.9 inches. You can get a high end tablet thats pretty close to the new Ipads size at only $499 with everything while the same Ipad will cost almost $900. The specs on the Kindle Fire HD will be on par if not higher than the Ipad mini and will cost (probably) $200 cheaper. Conventional wisdom tells me that unless Apple releases the Ipad mini at around $250, it just wont sell because the Nexus 7 and Kindle Fire are at aroud that price. But hey.... some people are willing to pay extra....

A 7.85" iPad will probably cannibalize some 9.7" iPad sales, but Apple will still sell about a million per week of the larger iPad. At least until the 4th gen. iPad arrives, then the numbers go higher again.

Do you really believe that Amazon will sell many of the $499 Fires? The Amazon Marketplace has even fewer tablet-optimized apps than the Google Play store. These Kindle Fires are being pushed primarily as media consumption devices, with video being the focus for the larger screen version. Anyone who buys one of the 4G versions with the $50 annual data plan will be able to watch very little HD video before hitting the 250MB cap.

I think that the bulk of sales will be for the $199 and $299 versions of the Fire. Folks who prefer to buy anything-but-Apple will have to choose between the Nexus 7 and the two cheaper Fires. Everyone else will probably wait for the 7.85" iPad. I think Apple can sell millions at $299, but I think they want to dominate this smaller tablet market and will price it at $249.

I sold my iPad 3 about two months ago in anticipation of an iPad Mini. Now, if Apple does not release it's 8' tablet, I will be buying a Kindle Fire HD 7'. I am a avid shopper on Amazon with a Prime subscription so I would rather buy a Kindle Fire HD than a Nexus 7! The Kindle Fire HD looks great and I'm loving the specs for a simple 7' tablet! Amazon has shown it's hand, Apple, it's your turn!

hmm, the $50 per year data plan offer is ONLY for first year. Look at the picture and you can clearly see "Year 1 Total Cost". That means the $130 difference between $369 Fire HD (32GB) and $499 Fire HD 4G is what Amazon will pay AT&T for the first year. iPad with the same data plan of 250MB per month is $15 per month or $180 per year (i.e. $130 + $50) same as what Amazon has. So, AT&T doesn't give Amazon any special offer but Amazon does eat the cost of a 4G chip inside the Fire HD 4G.